Cynical populist politicians try to gather votes by playing Robin Hood. They think taxing the rich will make them popular with poor, and sadly, they are right. As the poor don’t realize, but readers of this blog have learned, TAXING THE RICH actually hurts everyone, especially the poor. Read the following article By JEANNINE AVERSA, AP Economics Writer, dated Aug 1, 2010
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“WASHINGTON – Wealthy Americans aren’t spending so freely anymore. And the rest of us are feeling the squeeze. […] Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans — those earning at least $207,000 — are buying less. They account for about 14 percent of total spending.
[…]
“President Barack Obama wants to allow the top (tax)rates to increase next year for individuals making more than $200,000 and couples making more than $250,000. The wealthy may be keeping some money on the sidelines due to uncertainty over whether or not they will soon face higher taxes. […] Think of the wealthy as the main engine of the economy: When they buy more, the economy hums. When they cut back, it sputters. The rest of us mainly go along for the ride.

“Earlier this year, gains in stock portfolios had boosted household wealth. And the rich responded by spending freely. That raised hopes the recovery would strengthen. […] The affluent went back to tightening their belts in June after months of vigorous showing. Data from MasterCard Advisors’ SpendingPulse showed luxury spending fell in June for the first time since November. […] “It isn’t a good omen for the consumer recovery, which cannot exist without the luxury spender,” said Mike Niemira, chief economist at the International Council of Shopping Centers.

“[…] And it helps explain why economists expect the rebound to lose momentum in the second half of the year. Especially if the rich don’t resume bigger spending. “They are the bellwether for the economy,” says Mark Zandi, chief economist at Moody’s Analytics. “The fact that they turned more cautious is why the recovery is losing momentum. If they panic again, that would be the fodder for a double-dip recession.”

“That’s because whether they’re saving or spending, the wealthy deliver an outsize impact on the economy. What’s not clear is whether they will remain too nervous to spend freely again for many months. That’s what happened when the recession hit in December 2007 and then when the financial crisis ignited in September 2008.

“As their stock holdings and home values sank, the affluent lost wealth. Their jobs weren’t safe, either. Bankers, lawyers, accountants and mortgage brokers were among those getting pink-slipped. Those who did have jobs feared losing them. Neither group spent much. Instead, Americans’ savings rate spiked. And most of the increase came from the richest 5 percent, according to research by Moody’s Analytics. In the first quarter of this year, stocks rebounded, layoffs slowed and the rich were spending again. But now the rich are building up their savings and splurging less on discretionary items. That’s starting to show up in softer sales at upscale retailers, such as Neiman Marcus and Saks Inc.

“’The affluent — as their wealth goes down — they’ll become more and more conservative,’ predicts David Levy, chairman of the Jerome Levy Forecasting Center.”

The Obama administration wishes to raise taxes on the “rich.” This is an argument against that.

You are correct that federal taxes are not necessary, and indeed are the single most harmful of all government actions, removing to date, nearly $8 trillion dollars from the economy. I wish the point were moot, but unfortunately, few people accept that reality. So we fight for increments (Don’t raise taxes on the rich; eliminate FICA, etc.)

Well, if we accept the false premise that taxes must be raised, then the argument is reduced to how they will be raised – and from whom. You seem to be arguing that the negative economic effects of increased taxation would be lessened if it were imposed ‘somewhere else’.

An humanitarian argument in favor of taxing those with high incomes is that they are more able to absorb it without suffering undue hardship.

Another argument is that times were better for most Americans when the US had a more progressive tax system.

But why would you engage in a debate of limited options after having created this blog? You challenge people’s assumptions in most of the articles I have read, yet for the sake of ‘fighting for increments’, you’re amenable to reinforcing status quo beliefs. I don’t believe this is pragmatic.

Before learning about Modern Monetary Theory I would have engaged in such debates, such as the need to ‘tax the rich’ or reduce the debt and deficit. But that is a hat I no longer wear – for anyone.

I do not accept the false premise that taxes must be raised. I was arguing against the equally false premise that raising taxes on the rich somehow is O.K., because the rich “can afford it,” or for any other reason.

I also was arguing for incremental reductions in taxes, for two reasons:
1. Political expediency
2. Avoiding excessively massive and sudden changes

The link on this page (TAXING THE RICH) refers to a wealth redistribution scheme, which is not the same as taxation imposed to reduce the deficit. In wealth redistribution, one dollar of spending is supposed to offset each dollar taxed, resulting in no change in the money supply (or the deficit).

Your objection refers to any type of deficit reducing plan (the Bush Tax cut expiry perhaps?). The FICA proposal is not such a plan.

Wealth redistribution is not a fallacy, nor is it a cure-all, but conflating it with deficit reduction is something I’m not getting.

Robert, you’re correct that the link refers to a wealth redistribution and this post refers to taxation. I oppose taxing the rich for both reasons. It doesn’t redistribute wealth, and it takes money from the economy.

I oppose deficit reduction. I favor deficit increases, of which the elimination of FICA is one step.

Yes, it does. We are in disagreement regarding the effectiveness of wealth distribution, when it is used. I hope this clears up why I consider taxation (re. deficit) a moot point during a time of recession and absent of any worries about inflation. I would add that wealth distribution is also a moot point at this juncture for the same reason. The government can let the rich keep their money and they can help the poor. They can cut FICA and fund health care.